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State Insurance Regulators Offer Tips to Consumers on Disability Insurance
Most Americans are not prepared to deal with the possibility of becoming disabled and, in turn, unable to work, according to new research by the National Association of Insurance Commissioners (NAIC). More than half (56 percent) of U.S. adults say they would be unable to pay their bills or meet expenses if they became disabled and could not work for a year or longer, according to a January NAIC national consumer survey fielded by International Communications Research.
The survey showed consumers have an optimistic picture of their future, with only 13 percent saying it was somewhat or very likely they would become disabled and unable to work. However, data from the Social Security Administration (SSA) indicates that a substantial portion of the nation's population -- 20 percent -- will actually become disabled for a year or more before reaching age 65.
These findings highlight the need for long-term disability insurance, designed to protect people financially by replacing some of their lost income. In the NAIC survey, only 44 percent of respondents indicated they had long- term disability coverage. Of these individuals, 71 percent said their long- term disability insurance was employer provided rather than individually purchased. This suggests a significant number of people could lose their coverage in the event of a change in employment status.
"Many people don't think about the impact becoming disabled can have on their ability to earn a living and remain financially independent," said Walter Bell, NAIC President and Alabama Insurance Commissioner. "Understanding the role of disability insurance at each life stage is critically important to one's total financial security."
Having knowledge about disability insurance options before an accident or serious illness occurs can help ease the financial pain during recovery. The NAIC provides information on disability insurance for consumers in all life stages on its consumer education Web site, Insure U (www.InsureUonline.org).
The Basics: What All Consumers Should Know About Disability Insurance
For insurance purposes, disability is typically defined as the inability to work due to an illness or injury, although the definition varies among different insurance companies and policies.
There are two main types of disability insurance: short-term and long- term.
Short-term disability insurance, which some states require employers to carry for their employees, replaces a portion of the policyholder's salary for a short-period -- typically from three to six months following a disability. The specific percentage of replaced income varies with different policies.
Long-term disability insurance coverage typically begins after the policyholder is disabled and unable to work for at least six months. The coverage period can extend for a specific number of years or until the policyholder retires or turns 65, depending on the policy selected and the type of disability. Though policies can be costly, being disabled for a long period of time can be financially devastating. According to research by the U.S. Department of Education and the National Institute on Disability and Rehabilitation, the most common causes of long-term disability are heart disease, back injuries and cancer, followed by anxiety and depression. In 2005, about a third of disabled worker beneficiaries had been diagnosed with a mental disorder, according to the SSA.
Consumers should not confuse disability insurance with workers' compensation -- a benefit that employers are required to carry in most states for employees who are injured on the job.

  The NAIC offers the following tips to consumers considering disability
  insurance:

  * Determine how much money you'll need to cover all of your critical
    expenses (such as mortgage payments/rent, food, utilities and
    transportation) should you become disabled. Unless your investments and
    savings can maintain your current lifestyle for several years, you may
    want to consider purchasing long-term disability insurance, which
    typically covers about 60 percent of your previous income. The
    percentage varies depending on the policy you select. Also, you'll need
    to decide how long you want benefits to last.

  * Be aware that having a pre-existing health condition, such as a back
    problem or heart ailment, coupled with your age, could affect whether
    you'll qualify for long-term disability insurance and at what cost. You
    may be subject to a higher premium or be "excluded" completely from
    purchasing a policy based on your medical history.

  * Typically, younger, healthier individuals pay lower disability premiums.
    If you purchase disability insurance at a young age and can get a "non-
    cancelable" policy, your coverage can't be cancelled and the premiums
    can't be raised once your medical exam has been approved and your policy
    issued, assuming your premiums are paid on time.

  * While a "guaranteed renewable" policy can't be cancelled, its premiums
    may be increased on the anniversary of the policy or when stated in the
    policy.

  * Most long-term disability insurance stipulates a waiting period, such as
    90 days, 180 days or one year before benefits are paid. The longer the
    waiting period you select, the lower the premium.

  * If you have disability insurance and become disabled, you'll need to
    fill out a claim form. Keep in mind that many insurance companies will
    require supporting documentation from physicians to verify whether and
    to what extent you are disabled, before paying out on a claim.

  * Find out if your employer offers a group short-term and/or long-term
    disability plan. Typically, premiums from group plans are less expensive
    than individual policies. Also explore whether you can convert group
    disability coverage from your previous employer to an individual policy
    should you change jobs.

The federal government does offer long-term disability benefits through the SSA under the following specific circumstances: " ... if you cannot do work that you did before and we decide that you cannot adjust to other work because of your medical condition(s). Your disability must also last or be expected to last for at least one year or to result in death."

              Disability Insurance Tips for Each Life Stage

  Following are some considerations for consumers based on their likely
  needs in different life stages.

  * Young singles: A 20-year-old worker has a 30 percent chance of becoming
    disabled before reaching retirement age, according to the SSA. Young
    people who suddenly can't work due to an accident or sickness still will
    be responsible for paying their bills.

  * Young families who rely on both spouses' incomes should consider
    purchasing long-term disability insurance for both. At this life stage,
    families typically have many expenses, including a mortgage and child
    care.

  * Established families may also want to consider purchasing disability
    insurance. In addition to their regular expenses, established families
    are likely trying to put away a portion of their income to pay for their
    kids' college tuition, as well as save for retirement. Becoming disabled
    for a lengthy period can greatly interfere with these savings plans.

  * Empty nesters/seniors who are still employed may want to keep their
    disability insurance in force until they turn 65 or retire.

"Before purchasing any disability policy, consumers should check with their state insurance department to make sure the company offering the coverage is legitimate, solvent and authorized to do business in their state," said Catherine J. Weatherford, NAIC Executive Vice President and CEO.
For more information about insurance, consumers can visit the NAIC's consumer education Web site, Insure U, at www.InsureUonline.org.
ABOUT THE NAIC
Headquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and the five U.S. territories. The NAIC's overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, the NAIC is the oldest association of state officials. For more than 135 years, state-based insurance supervision has served the needs of consumers, industry and the business of insurance at-large by ensuring hands- on, frontline protection for consumers, while providing insurers the uniform platforms and coordinated systems they need to compete effectively in an ever- changing marketplace.
Source: National Association of Insurance Commissioners
Web site: http://www.insureuonline.org/

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